FMC Sends Letter to Senate Commerce Committee in Support of a Public Performance Right for Sound Recordings

United States Senate
Committee on Commerce, Science and Transportation
Washington, DC 20510

October 19, 2005

Dear Senator:

The Future of Music Coalition is a national nonprofit organization that works on the challenges at the intersection of music, law, technology and policy on behalf of musicians and citizens.

We write today to urge Congress to consider a modification to the US Copyright law that is long overdue. This modification would benefit creators, compensate performers, establish licensing parity among media providers and bring the United States’ copyright standards in line with other developed nations: the establishment of a public performance right for sound recordings.

Under current US copyright law, radio stations that wish to broadcast music can do so legally once they pay for a blanket license from the three US performance rights organizations that represent songwriters and publishers: ASCAP, BMI and SESAC. For an annual fee based on a small percentage of a station’s gross revenue, these licenses allow broadcasters to play music from any of the represented songwriters/composers without having to go through the costly process of clearing individual songs for airplay.

Radio has flourished under this blanket license arrangement, allowing consumers free access to music while generating advertising-based revenues near $20 billion.1 Equally important, these blanket licenses have created a dependable source of income for tens of thousands of songwriters and publishers. The money generated from license fees is distributed by the PROs to their songwriter, composer and publisher members based on the public use of their works. As an indication of the significance of this revenue stream for musicians and the industries that they support, ASCAP reported distributing over $610 million to its members in 2004.2

There is, however, a clear failure in this otherwise supportable system. While PRO royalties are distributed to songwriters and composers for public performances, this right does not extend to the performers, recording artists or the sound recording copyright owner.3 For example, when you hear Patsy Cline singing “Crazy” on the radio, the songwriter Willie Nelson is compensated through BMI, but the estate of Patsy Cline is not compensated for that performance, nor are the studio musicians and backing vocalists, nor the record label, that brought that song to life.

This is more than a curious glitch in copyright law; US broadcasters have actively resisted the establishment of a broad performance right for decades. They have argued that radio airplay serves as a promotional tool that leads to album sales, which has traditionally been how recording artists – and record labels – are compensated. But this argument is quickly losing relevance. Digital downloads, digital subscription services, internet radio and satellite radio are all expanding the marketplace for music. Much of this new development focuses not on selling recordings in any format, but rather on selling the opportunity to listen to broadcasts, transmissions or streams of music. In other words, the music industry is moving rapidly away from selling albums to monetizing the value of accessing and interacting with entire catalogs of music. As the music industry changes, we need a copyright system that compensates all the members of the creative team for their work.

US broadcasters remain the only group that opposes the creation of this right. The US Copyright Office has offered consistent support for the performance right for sound recording for decades.4

By modifying existing copyright law to include a performance right for sound recordings, Congress will:

Equalize Rights and Licenses Among Competing Media Providers. Under US Copyright law, compensation for performances of sound recordings varies according to the mode of delivery. Returning to our prior example, if you hear Patsy Cline singing “Crazy” on your terrestrial radio, she is not compensated. However, if you hear the same performance on XM or Sirius, or via a webcast, or on a cable music station – even on that terrestrial radio station’s webcast – Patsy Cline’s estate is compensated. Her royalties for these performances are the result of the Digital Performance Right in Sound Recordings Act of 1995 (DPRA), which established a public performance right for sound recordings on certain digital and satellite performances. This was a welcome piece of legislation for performers and copyright owners, but during its passage Congress exempted traditional radio, thus allowing radio stations to continue to broadcast copyrighted sound recordings free of charge.

Recently, some leaders in the US broadcasting industry have complained about competitive forces and regulation. In an October 4, 2005 speech, Clear Channel CEO Mark Mays emphasized the burdens felt by “free radio” not felt by its competition – including digital music services and satellite radio – regarding regulations on the number of stations owned and indecency standards. We find it questionable for the CEO of the world’s largest radio company with broadcast revenues topping $3.75 billion for 2004 to ask for government relief from competitive market forces, given the number of licenses and fees terrestrial broadcast radio does not pay as compared with their competitors. Because of the DPRA, most new forms of music delivery pay a royalty to each party in the creative process – songwriters and composers, performers, publishers, backing vocalists and studio musicians, and the sound recording copyright owner (usually the record label). Compare this with terrestrial broadcasters who only pay songwriters/publishers.

This situation is all the more indefensible given the fact that radio stations have built vibrant and successful businesses – and earned huge profits – off something they get for free. Broadcasters receive their biggest resource – recorded performances – at no cost from the record labels. It is the music that attracts listeners to radio stations, which then enables the radio stations to sell advertising on the basis of market share. For radio stations to resist sharing any revenue with the creators whose sound recordings are actually responsible for the revenue is unjust. No other copyright holders are denied compensation because of the alleged promotional value of copyright consumers’ use. To penalize sound recording copyright holders and performers this way is inconsistent, unfair, and arguably inefficient public policy.

The unfairness of this policy is even more obvious when we consider the transformation underway with terrestrial radio – the transition to HD radio. As radio switches from broadcasting in analog to digital signals, industry engineers predict that incumbent radio station licensees will be able to program an additional two to four side-channels on their slices of spectrum, thus at least tripling their opportunity to generate revenue. Despite the digital nature of HD radio, the DPRA does not apply.5 Therefore, all musical performances on these new HD radio stations will not have a public performance right for sound recordings. Unless Congress acts, incumbent broadcasters will continue to enjoy their exempt status that sets them apart from other media providers.

We urge Congress to modify copyright law to include a broad performance right to ensure that recording artists are compensated for the use of their works, and to create parity among media platforms.

Harmonize US Copyright standards with compatible countries. In addition to being unable to collect royalties from performances on US terrestrial radio, American performers and record labels also lose out when their works are performed in foreign countries.
The US is one of the few industrial countries – if not the only one – that does not have a broad performance right for sound recordings. At least 75 nations, including most or all European Union member states, do have a performance right. This means that foreign broadcasters have licenses that allow for the royalties to flow to songwriters/composers and performers. But since there is no reciprocal right in the US, foreign PROs refuse to distribute these royalties to American performers. This leaves tens of millions of dollars of royalties on the table instead of in the pockets of American performers.

The lack of a performance right in the US confounds international licensing and royalty distribution mechanisms. As the music industry continues to expand on a global scale, and as the purchase and enjoyment of music is controlled less and less by geographical borders, having copyright laws that align with worldwide standards is more important than ever. Modifying the US Copyright law to include a performance right for sound recordings will bring us into harmony with the rest of the industrialized world.

Importance of imposing broadcast flag for radio will diminish. Some music and entertainment organizations have been calling on Congress to include a mandatory broadcast flag on television and HD radio as part of the DTV transition. Their concerns are based on the fear that consumers will use new digital technologies to make or store unauthorized copies of music, television shows and movies. Industry representatives argue that Congress must grant the FCC the authority to require new hardware manufacturers to include a digital chip that will stop consumers from downloading or storing copyrighted material that has been “flagged” by content owners.

FMC recognizes their concerns in protecting copyrighted works in a digital age, but we do not think that creating a legal requirement for DRM-based technologies is the best answer for consumers, innovators or creators. We fear the negative impact on law-abiding consumers who purchase new electronic hardware with expectations about general workability who are then frustrated when broadcast flags restrict them from enjoying music and media in ways that they have come to expect, or align with time-shifting practices accepted by the US Supreme Court. We fear the consequences for the technology industry that will be forced to adhere to security standards that will, by their very existence, restrict innovation and shut off avenues to business models and delivery systems that the broadcast and music industries have yet to even imagine. Finally, we remind Congress that broadcast flags do nothing to directly compensate recording artists and songwriters, they only protect the existing business models of the music and movie industries.

Clearly, sound recording copyright owners (the record labels) are worried about revenue lost to piracy. It is their belief that DRM technologies can protect existing revenue streams and business models, but history has shown that technological locks are quickly broken by the handful of consumers who are determined to do so. Even worse, the flags would very likely kill innovation that would allow for even more equitable systems in the future. By focusing on broadcast flags instead of a public performance right, we’re trading working on the future for maintaining the past.

Instead of adopting a broadcast flag that is of questionable legal standing,[6] FMC urges Congress to recognize the positive impact that licenses would have in this scenario. By modifying copyright law to include a performance right for sound recordings, both performers and record labels will be receiving royalties for these performances. Given the expectation that HD radio will lead to possibly three times as many radio stations on the dial, we believe that performers and record labels could see a significant increase in royalty revenue.

Choosing licenses over locks creates a win-win situation. By renouncing DRM-based technologies, Congress will also ensure that consumers have the ability to use digital technologies in ways that expand their access to music and entertainment. Most importantly, when united with the existing performance rights, a broad performance right in sound recordings will ensure that songwriters, performers and record labels are compensated for the public performance on terrestrial radio or on the expanded HD radio of the future.

There is no better time for Congress to consider taking this important step. The denial of a full public performance right is inconsistent with the philosophy of copyright law to secure the benefits of creativity to the public by the encouragement of the individual effort through private gain. Without a full performance right, especially as we move into an era of digital convergence, recording artists must rely disproportionately on a dwindling sales income, which will not provide the necessary incentive for recording artists to create in the 21st century. In addition, the international harmonization of copyright standards is long overdue.

Since our last letter to Congress on this subject in August 2004, we’ve seen astounding technological developments including podcasting, HD radio, genre-specific channels, 500 million iTunes downloads and now iPods with video capabilities. All of these innovations lead us closer to the “celestial jukebox” where music fans will be able to access vast amount of digital music to listen or purchase on many platforms. It is time to reform the copyright law to ensure that all participants in the creative process – songwriters, composers, publishers, recording artists, record labels, backing musicians – are compensated for the public performance of their work, whether on satellite radio, webcast, HD or terrestrial radio. This goes hand in hand with the need for parity among media providers’ licensing, and harmonization with international copyright standards. A broad public performance right for sound recordings will ensure that creators, performers and copyright owners are compensated in the 21st century.

2. ASCAP Reports Record Member Distributions in 2004 http://www.ascap.com/press/2005/distribution_021505.html

3. There are two copyrights assigned to a musical work: the underlying musical composition and sound recording. The composition (lyrics and music) has a public performance right, which is the right administered by the performance rights organizations ASCAP, BMI and SESAC. The sound recording (ie the performance of the musical work) does not have a performance right for non-digital performances in the US.

4. An excellent overview of the US Copyright Office’s longstanding support for the full performance right is included in “Internet Streaming of Radio Broadcasts”, Statement of David O. Carson, General Counsel, United States Copyright Office before the House Committee on the Judiciary, Subcommittee on Courts, the Internet and Intellectual Property, July 15, 2004 http://www.copyright.gov/docs/carson071504.pdf

5. DRPA does not apply unless the terrestrial broadcaster chooses to use a side-channel to create a subscription service or an interactive service. In those cases, the radio station will pay the digital performance right to SoundExchange.

6. In May 2005, the Court of Appeals for the District of Columbia found that the FCC had “exceeded the scope of its delegated authority” when it created the requirement for a broadcast flag for digital television. American Library Assn vs. FCC 04-1037b, May 6, 2005